IHS Forum Identifies Key Points for Middle East Economic Growth

Scott Key, President and CEO, and Nariman Behravesh, Chief Economist of IHS speaking at the press conference during IHS Forum in Dubai, which was held from 27-29 April 2014.

As far as economic prosperity is concerned, one doesn’t have to look towards the otherwise conventional Western countries nor towards the Far East, in China. It’s in the Middle East that the treasure trove of economic prosperity lies with new highs being expected in the forthcoming two decades.

Scott Key, President and CEO of IHS, a global information company, speaking to the Dubai Eye 103.8 radio during their Business Breakfast show on 28th April, gave his viewpoints comparing the currently prevailing situation in various countries in the world like the United States, Mexico, China and the currently existing economic conditions and growth prospects in the entirety of the Middle East. According to Mr. Key, there are various reasons as to why the economic trends in the Middle East will have upswing further in the coming few years and each reason is solidified some thoroughly planned decision-making which endeavour to make the Middle Eastern economy sounder and more invulnerable.

IHS is currently seeking to widen its operations in the UAE which in itself has been charted to be huge milestone as far as the region’s overall global economic soundness in concerned. Mr. Key pinpoints that the entirety of the Middle Eastern region has been focused not only towards enriching or developing their rich petroleum and petro-chemical oriented coffers, but towards areas like defense, marine activities and the automobile sector. He uses the terminology ‘broad-based growth for 20-years to come’ and explains that nearly a trillion dollars can be expected to be invested in the defense and about US$ 30 billion in its other local offsetting sectors. All of these, he adds, can be expected to add about one-two percent more growth as compared to growth in other countries and regions in the world.

In a bid to identify these growing sectors and help them develop and evolve further, Scott Key reiterates that IHS will provide full-fledged support with increased operations in the region. Statistically, he also points out that the petrochemical sector in the Middle East – especially the exports of petrochemicals – are expected to grow at about eight percent by 2016, which is essentially a substantial increase of about two percent from the predicted percentage. One of the most important reasons for such increase, he adds, is because of the strong supply chain in the Middle East which has allowed the region to invest more technologically towards refining this strong supply chain, effectuating in better connectivity with the various markets across the world.

“We are witnessing the beginning of the ‘second generation’ of the Middle East chemical industry,” explains Dave Witte, general manager of IHS Chemical and senior vice president at IHS. “The Middle East continues to be a dominant force in petrochemical production. The region faces an opportunity to pivot to strategies that leverage their growing technological expertise, expand their global footprint and seize upon commercial advantages. Additionally, this new era enables Middle East producers to continue building on their leading position in commodity production and expand into intermediates and higher-value products.”

He also asserts, “For the Middle East refining and petrochemical industry, a changing global feedstock mix – combined with increasing competition in the US driven by the availability of cheaper gas feedstock – are reinforcing previous decisions by Middle East petrochemical producers to continue investing in new technology. The industry is also diversifying its feedback mix and expanding its product slates to include more higher-value intermediates.”

Speaking of defense, which Mr. Key highlights prominently alongside petrochemical and refineries’ based coffers, the sector holds quite an important contributing value to the region’s development as it is expected to create spending worth 30 billion to the indigenous sectors within the region. Furthermore, he also adds that the biggest advantage for the Middle Eastern economy and the supply chain is the way each economic sector is inter-linked to the other, which ensures a unique sort of all-round development.

IHS’ senior-most analyst, Guy Anderson adds, “By 2020, $27 billion will be injected into the Gulf economy from defense deals via offset programs. Defense offsets are a form of direct or indirect economic compensation to balance defense equipment purchases, and they are increasingly becoming the deciding factor in larger military acquisition programs. By 2020, $12.6 billion will be added to the Saudi economy from defense offset deals, the highest globally. In second place will be the UAE, with $12.2 billion added during the same time period. India will take the number three spot, with $10.4 billion added to its economy. The Gulf has placed a strong emphasis on the long-term economic value of defense offsets. An IHS review of Gulf offset programs found that the region is emphasizing the development of its non-oil sector economy, specifically advanced training and investment. Economic diversification is seen as one avenue to achieve long-term economic goals, defense industrialization is viewed as a route to economic change and an opportunity to create jobs for nationals.”

The recent announcement of diversification of operations by Boeing with particular emphasis on the UAE is also seen by Mr. Key as being an offshoot of attracting businesses and supply chain activities on account of increased economic activities and growth in the UAE region. He also makes note of such increased diversification activities in the technology and automobile sectors as well.

“The Middle East automotive market is forecast to grow twice as fast as those of Western European and North American markets from 2012 to 2022,” explains IHS’ automotive analyst, Pierluigi Bellini emphasising, “In 2022, IHS Automotive forecasts that light vehicle sales in the GCC will jump 25 percent to 1.74 million, and sales in the Middle East (the GCC, Iran and Israel) will jump 30 percent to 3.45 million.” IHS statistics indicate that nearly over a million light automobiles were sold in the GCC alone with over two million light automobiles sold across the Middle East.

Aside of the automobile sector, the marine sector too is expected to grow quite fully in the Middle Eastern region, especially the UAE. IHS statistics pinpoint that thanks to the heavy investment-based spending in order to improve the infrastructural facilities at ports in the United Arab Emirates, the region will be the preferred port destination for ships passing through or entering through Africa, the Indian sub-continent and even from other countries in the Middle East. Scott Key reiterates that in Dubai, nearly US$ 18 billion worth of additional cargo capacity has been added to its marine sector which, too is an important indicator of the overall balanced and diversified nature of economic activities in the Middle Eastern region.

Mr. Key also cautions that the keys to such continued upswings in the UAE are the business confidence and spending aspect of the indigenous investors. He believes that as long as investors have confidence in the various businesses and business activities taking place across the UAE, the prospects of economic growth will be quite high. He explains that the factor of continued confidence of investors in the business activities taking place across the region have benefited not just the UAE, but also the Middle East at large keeping its pace of growth quite high in comparison with the rest of the world.